- FTX allegedly misused customer deposits for business investments, political contributions, and charitable donations.
- Noted accounting expert, Peter Easton, evidences a gap between FTX user deposits and the exchange’s bank reserves.
Accounting Expert Highlights FTX’s Financial Discrepancies
In the evolving courtroom drama surrounding Sam Bankman-Fried and his company FTX, a renowned accounting professor’s recent testimony has added weight to the claims that FTX mishandled user funds on a massive scale.
Delving Deep into FTX’s Financial Records
University of Notre Dame accounting luminary, Professor Peter Easton, equipped with his vast experience, including aiding the government in high-profile Enron and WorldCom investigations, was tapped by the Department of Justice to analyze FTX’s financial dealings. When queried about FTX utilizing user deposits for various purposes, Easton’s response was a confident,
“Oh, yes.”
His thorough analysis revealed that FTX redirected user deposits into diverse channels. These funds flowed into business investments, real estate ventures, and even political and charitable contributions. A particular chart crafted by Easton painted a concerning image of the exchange’s financial health.
Around March 2021, FTX user deposits had already surpassed the actual bank reserves, signaling that user funds were already unbacked at that juncture. By June 2022, with FTX deposits soaring, the company reportedly held just $2 billion to cover an overwhelming $11 billion in user deposits.
To further accentuate his point, Easton discussed the movement of FTX’s customer money into various business ventures. He concluded, for instance, that the entire acquisition of Modulo Capital, a Bahamas-centric financial entity under FTX’s umbrella, was funded using user deposits. Additionally, Easton’s investigation indicated that the lion’s share of FTX’s capital injection into SkyBridge Capital, spearheaded by Anthony Scaramucci, and a hefty $550 million investment in Genesis Digital Assets, a distinct bitcoin mining entity, originated from FTX user funds.
Further adding complexity to the narrative, Easton’s analysis showed that vast sums of FTX user funds made their way into a bank account linked to Paper Bird, Inc., an enterprise exclusively owned by Bankman-Fried. This capital was then channeled into a whopping $100 million investment in Dave, Inc., a mobile banking platform.
Contrasting Public Claims and Internal Realities
Eliora Katz, a former FTX lobbyist, also took the stand, drawing attention to the glaring disparity between Bankman-Fried’s public statements about FTX’s protective measures and the concealed financial maneuvers that eventually led to the company’s downfall. In a poignant moment, a video clip showcased Bankman-Fried emphasizing FTX’s transparency, juxtaposed against a background of the 2008 financial meltdown. However, testimonies from prosecutors and guilty-pleading FTX insiders painted a contrasting image: irregular financial record-keeping and unauthorized funnelling of user funds.
The day’s testimonies did not sit well with Judge Lewis Kaplan, who criticized both the prosecution and defense teams. Labeling some testimonies as “a joke,” he believed certain evidentiary elements could have been streamlined and agreed upon without undue elaboration in court.
